Inside the Not-so-Great Real Estate Crash of 2013

I was just reading the Toronto Real Estate Board’s figures for August, about which they reported more than 7,500 residential transactions, an increase of more than 20% over last year’s 6,200ish. TREB’s president said sales were up strongly this August for all major home types. Prices, too, are up, by about 5% compared to this time last year.

In yesterday’s CMHC housing starts report, Deputy Chief Economist Mathieu Laberge says, “The trend in total housing starts continued to be relatively stable for a sixth consecutive month, remaining within a narrow range of roughly 182,000 to 188,000 units since March 2013. This is in line with our forecasts.”

Hardly the harbingers of doom we were told to watch for back in January, when MacLean’s ran a front page with the headline “Inside the Great Real Estate Crash of 2013.” The subhead? “Who will get hit hardest and what it will mean for our fragile economy.”

The inside pages featured a “Crash and Burn” headline followed by the subhead, “The housing bubble has burst, and few Canadians will emerge unscathed.”

In hindsight, perhaps a tad incendiary.

In the article, the author repeatedly uses what I’m sure he thinks are clever word tricks to obfuscate the fact that there wasn’t a story there, even then. “A housing correction — or, possibly, a crash — is no longer coming. It’s here.” Well, a “correction” is a far cry from a crash, and if there was a crash, shouldn’t he have been reporting on it? Didn’t even he, as the author of the piece, know whether there had been a crash?

He calls Sherry Cooper (retired chief economist at Bank of Montreal) using the word “balloon” that had been gently deflated instead of snap-crackle-pop “bubble” a “semantic distinction,” which of course is exactly what “correction” versus “crash” was in his own earlier paragraph. Neither word changes the numbers.

He goes on to relate some of the other dire predictions (that aren’t coming true) by economists and other industry pundits who don’t know what’s going to happen either. Let’s just say the word “if” comes up a lot.

(I don’t want this to devolve into a rant about the state of “journalism” these days, although it easily could, but I will throw out the existential idea of self-fulfilling prophecy. If the economy is such a mess, perhaps we should stop employing so many people whose job entails predicting what might happen and redirect their energies to producing something. Anything. And to those reporters who divert themselves with such non-stories, let’s demand better. Let’s ask that they report the news, not try to create it, and if there’s no news, to turn their attention to the great, big world out there, in which something fascinating is always happening in this industry, and every other.)

The Canadian Press last month reported that after another “market-cooling tweak” from Ottawa, the Canadian housing boom was in its “9th inning,” and the entire sector on “a kind of death watch.”

It says that even while the home prices and starts point towards the much hoped-for soft landing, land purchases and building permits suggest the crash is coming. Building permits in the residential sector fell almost 13% in June, said the story, and multi-unit dwelling permits, i.e. condos, fell by almost 19%.

Land investments for future home building had, they said, plunged according to RealNet Canada, by 51%, 52% and 30% respectively in Toronto, Vancouver and Calgary.

Sure, home sales are “doing dandy,” but that’s just the calm before the storm. Capital Economics’ David Madani is quoted saying that homebuyers are having a “Wile E Coyote moment,” that is, suspended over the precipice in the moment just before they realize there’s nothing keeping them aloft.

That means we shouldn’t be looking for a drastic increase in home prices anyway — volumes down and prices up could well be a warning sign.

Still, using yet more economists’ predictions, the story wrapped up with the usual maybe/maybe not scenario — either crash or coast. The consensus remains coast.

While housing accounts for less than 10% of the economy, it’s an important segment. When it goes bad, a chain reaction of fewer jobs, diminished consumer confidence, banks potentially taking losses (gasp!) and slower growth.

Guessing about what could happen to the market is really only useful for those who would invest in it — for the rest of us, whose only real estate transactions will ever be their primary residences, common sense suffices, as always. Don’t get into too much debt. Balance your wants with your needs. Pick your neighbourhood wisely. Don’t be blinded by emotion. Be prepared to stay put for a few years if you have to.

The truth is that the market right now is stable, and there had to be a slowing simply because the market is cyclical and what goes up will come down. Imagine if it didn’t? Our average home prices would be in the millions.

Maybe we need to adjust our thinking — instead of it being assumed that you’ll graduate from college or get married and pick up the keys to your brand new home the next day, we may need to be like most other city-dwellers in the world and rent for a while. If we did that, there would be some healthy land-purchase figures with rental housing as their intent.

If we stopped trying to make our livings solely disseminating information and tried to actually manufacture something, there would be a need for land purchases to build new factories.

We are the architects of our own destinies, and nothing the alarmists say should change that.